Admit it . . . you're not perfect.
Still, it would be nice to learn from someone else's mistakes
for a change, or at least avoid making the same mistakes twice.
With that in mind, here are 10 of the most common mistakes made by
astute (and some not-so-astute) investors. Feel free to tally up
how many you've made. If you tick off fewer than two, consider
yourself a pro; three to five, you're an expert; six to eight,
you need some help; more than eight, don't just sit
there . . . rethink your actions! Read on to
see how you fare.

1. Love me, love my stock. Everyone's heard the
one about the stock inherited from grandma that began as a few
measly shares and, through dividend reinvestment (and divine
neglect), is now worth hundreds of thousands of dollars. The stock
shares are like the Energizer bunny . . . they
just keep going and going, and presumably they always will. Or will
they?

Whether you're holding shares of a tobacco company, a
soft-drink purveyor or a software developer, perhaps you should
consider selling off a few of those wonderful shares and
diversifying your portfolio a bit. (Before you do, however, be sure
to check with your tax advisor.)

2. Hot fund, cold fund, 1, 2, 3. If you're
seeking a few good funds and have set your sights on a few of last
year's hottest ones, look before you leap. In many cases, last
year's top performers will be funds of similar style and market
sector, which means they'll probably all move in the same
direction--not bad if that direction continues to be up, but no fun
if things go the other way. That old saying, "Past performance
is no indication of future returns," is especially meaningful
here, as the performance of investments over time shows a
regression toward the mean. A hot fund could cool off just as
you're getting into it.

Instead, consider looking for fund managers with good long-term
track records whose funds are out of favor and who aren't
winning any popularity contests. By selecting funds that are out of
sync with the current best and brightest, you'll have the
chance to get in early on a trend. Of course, you may get in too
early, as did many investors who bought international funds in
1997. While their investments underperformed investing in large
U.S. companies last year, 1998 has gotten off to a great start for
these funds; many are currently outperforming many U.S. large-cap
stock funds.

3. Going for broke. Buy low, sell high. How
difficult can that be? For many of us, it's almost impossible.
It seems that lots of folks can tell you when to buy a stock (your
brother-in-law, your golf buddy, even your broker), but few can
tell you when to sell. See if this sounds familiar: You buy shares
in a stock you like and the price begins to rise. It continues to
rise until you have a profit of more than 20 percent. You're
now faced with a classic dilemma: Do you take the profit and run?
Unfortunately, no one has a crystal ball. You may have a
pharmaceutical company with the cure for cancer on your hands, but
there's no way to know for sure.

One possible strategy? When buying, set a target price at which
you'd be happy to sell. When your shares get there, reevaluate
your decision to see if you'd buy the stock anew at the higher
price. If not, sell, sell, sell, and don't look
back . . . unless the price falls to a point
where you want to pick it up again.

4. Better safe than sorry? Recently, a new client
came in to see me. About to retire, he wanted to be sure he could
maintain his lifestyle with his current investments. As he pulled
out his retirement plan statement, his whole demeanor changed.
"I can't believe I left all this money in a money market
fund for the past six years," he said. "I could have done
so much better if only I had invested a little of it in the stock
market. I was just so afraid of losing it that I didn't do
anything."

Certainly, this investor was justified in his fear of stock
market fluctuations. There's always some measure of risk when
investing in stocks and a chance you'll lose money.
Unfortunately, however, thanks to the bite taken by inflation and
taxes, you can also lose purchasing power in money market funds and
other similar investments. Our investor didn't realize his
money market fund was neither insured nor guaranteed by the U.S.
government. Further, there's no assurance such a fund will
maintain a stable net asset value of $1.

The moral of the story? To retire in the style to which he's
accustomed, our investor may be forced to work longer or to invest
more aggressively than he might have had he included a partial
investment in stocks in his portfolio from the start.

5. Over there . . . I think.
Looking to diversify your portfolio into overseas markets? Many
financial professionals agree that investors can improve the
long-term performance potential of their portfolios by moving
between 10 percent and 30 percent of their money into foreign
investments. But is your fund truly invested across the water? If
you're considering a global fund, you may be missing the boat.
International funds hold only foreign securities, while global
funds invest in companies in the United States and overseas. So if
you want to diversify into foreign markets alone, invest in an
international fund.

You should also know foreign investing is subject to certain
risks, such as currency fluctuations and social, economic and
political changes, which may result in greater share price
volatility.

6. I want my CNBC. What's the first thing you do
in the morning? If you switch on CNBC, get your fix of The Wall
Street Journal or check your stocks on the Internet before you
pour your coffee, you might be obsessing over the stock market.
It's true such diligence could lead to profits, but it could
also lead to needless worry, panic and way too much trading.
It's important to pay attention, but it's bad to be too
anxious.

7. Where do you want to go
today . . . and tomorrow? If Bill Gates
hadn't known where he wanted to go, he probably would have
ended up somewhere else. The same goes for your portfolio. If
you're saving for a goal that's five, 10 or 20 years away,
your reactions to the market's fluctuations will likely be
different from those of someone whose focus is on speculation and
short-term gains. If the lofty levels of stocks have you spooked,
consider dollar-cost averaging into investments you'd like to
own. By making smaller purchases on a consistent schedule, you
could be in a better position to take advantage of the market's
fluctuations without a lot of headaches.

8. Know thyself. Many people don't know their
risk tolerance. Ask yourself how you'd feel if you invested in
a stock and two weeks later, only half of your investment was left.
If you get sick just thinking about it, then maybe the stock market
isn't for you--at least when it comes to investment fads, hot
tips and initial public offerings. If you can't afford to lose
some money, consider other investments.

9. Ain't nothin' like the real thing. Face
it: 20 percent average annual returns are not an inalienable
right. The past several years have proved to be remarkable, but
that doesn't mean the bull will run forever. It also
doesn't necessarily mean the market will crash and return to
the 6,000 point level. To paraphrase Rudyard Kipling, "He who
keeps his head keeps his sanity (and his wallet)." Babe Ruth
had one of the finest batting averages in history, and even he
struck out sometimes. So if you expect your portfolio to swing for
the fences every year, you'll probably end up disappointed.

10. Know where your advice is coming from. What kind
of license does your financial advisor hold? Has your registered
representative received a bevy of customer complaints? If possible,
speak with him or her in person or over the phone and get a feel
for his or her style. Make sure your advisor understands your
objectives, and be honest about your goals and expectations. To
verify a potential advisor's experience, call the National
Association of Securities Dealers Inc. at (800) 289-9999. If
you're considering a certified financial planner, call the CFP
Board of Standards Inc. at (888) CFP-MARK.

Lorayne Fiorillo is a financial advisor and first vice
president of investments at Prudential Securities Inc. Past
performance is no guarantee of future returns. For more
information, write to Lorayne in care of Entrepreneur, 2392 Morse
Ave., Irvine, CA 92614.